Economic Reforms in Equatorial Guinea: Enhancing Fiscal Stability and Diversifying the Economy
The Republic of Equatorial Guinea has been undertaking significant economic reforms to address its fiscal challenges and reduce reliance on hydrocarbon revenues. In this article, we will explore the key developments in these efforts.
Fiscal Adjustment: Reducing Hydrocarbon Reliance
The government aims to reduce its dependence on hydrocarbon revenues by increasing non-hydrocarbon revenue through a new tax law. The law is expected to be approved in 2024 and will:
- Modernize the tax system
- Expand the tax net
- Incentivize foreign direct investment
Clearing Domestic Arrears: Restoring Confidence in the Banking Sector
Equatorial Guinea plans to clear its domestic arrears with the assistance of an international consulting firm. This effort is crucial for restoring confidence in the banking sector and improving public financial management practices.
Banking Sector Reform: Addressing Liquidity and Solvency Issues
The government has taken steps to improve the health of the banking sector by addressing liquidity and solvency issues at a systemic public bank. However, private banks with large stocks of non-performing loans (NPLs) related to government arrears in the construction sector remain undercapitalized.
Diversification Efforts: Promoting Economic Growth
The authorities recognize the urgency of reducing reliance on hydrocarbon production and are committed to diversifying the economy through targeted interventions in agriculture, internet service provision, and other sectors. They aim to:
- Improve the business environment
- Increase financing options for entrepreneurs
- Reduce informality
- Enhance human capital
Structural Benchmarks: Implementing Key Reforms
The Staff Monitored Program (SMP) includes several structural benchmarks aimed at addressing these challenges. These include:
- Implementing a new tax law
- Clearing domestic arrears
- Improving public financial management practices
- Auditing the end-2023 accounts of the systemic public bank
- Preparing for the sale of the bank to a strategic partner
Capacity Development: Enhancing IMF Support
The International Monetary Fund (IMF) will provide capacity development support in areas such as:
- Tax policy reform
- Revenue administration
- Fuel subsidy reform
- Public financial management practices
These efforts are designed to improve Equatorial Guinea’s fiscal situation, restore confidence in its banking sector, and promote economic diversification.